Sustainability Pathways

A monthly newsletter for asset owners

Finance gap for adaptation

Persistent uncertainty around inflation and interest rates presents significant challenges for asset owners in making long-term projections. In addition to these challenges, climate change is increasingly recognized as a systemic risk with the potential to impact entire economies and their financial markets.

Modeling future physical climate hazards under different emissions scenarios offers a way to assess the economic impact of climate change. Our recent APAC Climate Action Progress Report examined an extreme scenario of a 5°C temperature rise. It estimated that potential discounted losses could reach nearly 10 percent of the enterprise value of the constituents in the MSCI AC Asia Pacific Investable Market Index (IMI) due to physical risk hazards.

This finding underscores the significant economic impact that climate change could have. With global temperatures reaching a record high of 1.4°C above preindustrial levels in 2023, there is an urgent need for strategic action to bridge the adaptation gap.

Incorporating climate risks

Encouragingly, our research shows investors prioritizing financing the transition, rather than just focusing on portfolio-level decarbonization. One result is a surge in climate-related public and private funds, introducing additional complexity for asset owners as they seek to align with mandates.

Being able to understand underlying holdings may help asset owners direct capital appropriately.

As physical climate hazards accelerate, investors need transparency to support long-term projections. Geospatial intelligence could become imperative for a full portfolio picture of local impact across asset classes.